In Tuesday's "A Brief Recap of My More Optimistic Market View", I wrote that I fully respected the difficulty of achieving a soft landing but I defended my view of a mild and brief recession by highlighting the following:
-- Strength in our corporations and in the American consumer.
-- A strong industrial/corporate base that has generally improved their balance sheets by rolling over into inexpensive debt over the last five years, and has maintained high profits and profit margins.
-- Consumers have over $2 trillion of excess savings and a cushion of sizeable -- all-time record -- unrealized/imbedded gains in the nation's housing stock.
-- A still robust and tight labor market -- with solid wage increases is a highlight of the last several years.
-- As noted in my recent posts, some important components of inflation have recently moderated -- as the prices of essential commodities have fallen considerably over the last 2 1/2 weeks.
-- Interest rates may have peaked. The yield on the 10-year U.S. note has fallen by almost 40 basis points from the high in early June.
-- Developing signposts that the supply-chain disruptions are slowly behind resolved.
As to the boldfaced factor (above) -- the immensity of the unrealized gains in the housing stock and the record untapped housing equity -- are ballasts to containing foreclosure issues and, in the fullness of time, a beneficiary factor in the trajectory of personal consumption and domestic economy growth.
Here is a graph that illustrates the magnitude of homeowners' equity in their homes:
In Wednesday's morning's Goldman Sachs research, my point is further validated/confirmed:
"U.S. households unlocked built-up home equity at the highest clip since 2007 in Q1, likely motivated by the sharp selloffs in financial markets, declining savings, and the extended strength of the housing market. With that said, the amount of remaining untapped equity is still the largest on record. Higher mortgage rates and lenders' subdued appetite for second lien mortgages have made cash-out refinancing more challenging on a forward basis, likely dampening the willingness of households to extract untapped equity. Unless lenders expand their offerings of alternative mortgage products, the role of home equity in smoothing household wealth and consumption could be de minimis. That said, record-high untapped home equity should continue to serve as a crucial ballast against foreclosures. In our view, concerns over mortgage debt sustainability are overstated. Household debt service ability remains historically strong, and the ramp-up in home prices has lowered the loan-to-value ratio on outstanding mortgages."
Homeowners equity has more than tripled in the last decade (to almost $28 trillion). We see this level of untapped homeowners equity and imbedded/unrealized gains will be a ballast to economic growth.
(This commentary is excerpted from and originally appeared on Real Money Pro on June 29. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)
